PIMCO expects US interest rates to remain unchanged in October and rise in December

Asset management firm PIMCO expects the Federal Open Market Committee to keep interest rates in the range of 3.75% to 4.0% at its meeting on October 27 and 28, while maintaining a clear hawkish bias.

The firm said in a preview note for the meeting that markets priced in about an 80% probability of holding rates unchanged during the week preceding the meeting.

PIMCO considers the next move likely to be a 25 basis point hike in December, followed by one or two additional hikes, meaning higher borrowing costs will persist for longer.

It noted that the 5-year 5-year forward real interest rate has risen about 50 basis points since June to reach around 3%, an indicator monitored by investors to gauge the long-term trend of real interest rates.

What do these terms mean?

Federal Open Market Committee: The committee responsible for monetary policy decisions and interest rates in the United States.

Basis point: A unit measuring changes in interest rates; 100 basis points equal 1%, so 25 basis points equal a quarter of a percentage point.

Hawkish bias: A central bank's inclination to raise interest rates or keep them elevated to curb inflation.

Forward real interest rate: An estimate of future inflation-adjusted interest rates, derived from bond yields and used to measure the direction of monetary policy.